August 16, 2016 : Hydro One Limited (TSX:H.TO) announced solid second quarter results where remained marginally ahead of street estimate. Adjusted EPS of $0.25 beat consensus EPS estimate of $0.23. By and large, we see this quarter positively as the firm is making progress on cost containment. The consensus has increased target price by $1 to $25.50. The company has made significant headway in improving its cost structure. Superior planning has directed the company hitting its approved project spend targets, and gaining approved rates. Additionally, the company has made headway in improving the bad debts expense, and expects the systems almost that area to be at optimum levels by the end of 2016.
Hydro One is also expected to announce the hiring of a COO in the coming days, who is likely to be driving force behind continued cost reductions. In the conference call, management revealed that they are in the process of scanning the market with a focus on the North American regulated utility space. Saying that, the firm is building up its M&A capabilities and market do not expect them to be in a position to pursue large scale M&A until 2017. Additionally, the firm plans to declare the hiring of a Business Development and Strategy Head with significant North American experience, sooner.
Hydro One is at present in talks with two municipalities including Peterborough and Orillia; nevertheless, given the size, they are unlikely to make any noticeable difference. The firm is also in discussions with less than 10 other Ontario distribution utilities which could represent small, but simple tuck‐in acquisitions. To finance these likely acquisitions, company balance sheet is very strong and there is considerable space to add leverage.
Recently Hydro One announced to acquire 100% of Orillia Power Distribution Corporation (“Orillia Power”) from the City of Orillia, Ontario. Company will pay the City of Orillia $26.35 million for Orillia Power and assume approximately $14.9 million of debt and regulatory liabilities for a total transaction value of $41.3 million.
Hydro One is Ontario’s largest electricity transmission and distribution Company headquartered in Toronto, Ontario with approximately $24 billion in assets and 2015 revenues of over $6.5 billion. Hydro One delivers electricity safely and reliably to over 1.3 million customers across the province of Ontario, and to large industrial customers and municipal utilities.